Qatar National Bank (QNB) expected that interest rates would witness further increases, and the continued slowdown in growth in advanced economies, especially after the stances and hawkish tone witnessed by the monetary policy forum, organized by the European Central Bank, in the “Sintra” region, Portugal, annually.
In its weekly report, the bank expected that this situation would push the three main central banks, namely the US Federal Reserve, the European Central Bank, and England, to choose tightening policy in light of the uncertainty, especially since these banks are still on an intense mission to restore credibility, with the exception of Japan, which will continue with its monetary policy.
The report said: The visions that were disclosed during the forum by senior central bank officials indicate 3 conclusions, the first of which is that despite the expectations that these banks will shift at the beginning of the year to take a truce stance and cut interest rates early, tightening is still the prevailing system today for the “Federal Reserve”, “European Central Bank” and “England”.
The report indicated that the advanced economies proved to be more flexible than previously expected, and this justifies the continuation of the firm path by the monetary authorities, as Federal Reserve Chairman Jerome Powell stressed that despite the recent pause in raising interest rates, more increases are likely to be appropriate. Likewise, Christine Lagarde, President of the European Central Bank, indicated that there is still work to be done on the interest rate front, while the governor of England, Andrew Bailey, maintained a tough stance.
With regard to the second conclusion, the report pointed out that the monetary authorities acknowledged that the sharp slowdown is inevitable, and confirmed that the occurrence of a slight stagnation, or moderate weakness will not change its course, although the senior officials did not talk about the extent of their willingness to bear the periods of the recession, while the governor of the Bank of England and Andrew Billy kept the previous recession expectations, along with the bank’s fixed position on tightening monetary policy, Rawd during the next few quarters, with salting to accept them with such scenarios as a necessary sacrifice to curb high inflation.
Third, the Bank of Japan is taking a very different stance from other central banks. Its governor, Kazuo Ueda, has indicated that while core inflation has risen, core price pressure indicators such as wage growth are still insufficiently aligned with the Bank’s long-term inflation target for Japan, predicting a short-term decline in its rates, followed by a rise next year.
The report considered that with the exception of Japan, senior central bank officials in advanced economies showed hawkish tendencies during the forum, after the late start of last year’s tightening cycles, which allowed for a significant rise in inflation.
With the impact of tightening monetary conditions on economic activity, and in light of the uncertainty about what will happen next, the report raises 3 questions: Have the major central banks finished the cycle of raising interest rates? Do we expect a long pause in changing monetary policy? Are there plans for interest rate cuts later this year?
It is noteworthy that the Monetary Policy Forum is organized by the European Central Bank, every summer, and is one of the most important conferences of central banks in the world, as it brings together leading economists, bankers, market participants, academics and policy makers to discuss long-term macroeconomic issues.
Since its inception in 2015, it has garnered a lot of attention due to the influential speeches delivered by senior policy makers, which made it rival the Jackson Hole Conference in its attractiveness to investors.
The forum occupies a prominent place on the agenda of investors, and this year it was of great importance, as it was attended by the governors of 3 major central banks, namely the European Central Bank, the US Federal Reserve and England, as well as the Bank of Japan.
The convening of the forum came on the heels of a period when major banks had to catch up with above-target inflation, leading to rounds of interest rate hikes not seen in several decades.
